Comments (5 of 6)

I would look at ASC 605 15, 25 28 or 50 to get the correct source but here is a start:

Sales of Product when Right of Return Exists
25-1 If an entity sells its product but gives the buyer the right to return the product, revenue from the sales transaction shall be recognized at time of sale only if all of the following conditions are met:

a. The seller's price to the buyer is substantially fixed or determinable at the date of sale.

b. The buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product. If the buyer does not pay at time of sale and the buyer's obligation to pay is contractually or implicitly excused until the buyer resells the product, then this condition is not met.

c. The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.

d. The buyer acquiring the product for resale has economic substance apart from that provided by the seller. This condition relates primarily to buyers that exist on paper, that is, buyers that have little or no physical facilities or employees. It prevents entities from recognizing sales revenue on transactions with parties that the sellers have established primarily for the purpose of recognizing such sales revenue.

e. The seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer.

f. The amount of future returns can be reasonably estimated (see paragraphs 605-15-25-3 through 25-4). Because detailed record keeping for returns for each product line might be costly in some cases, this Subtopic permits reasonable aggregations and approximations of product returns. As explained in paragraph 605-15-15-2, exchanges by ultimate customers of one item for another of the same kind, quality, and price (for example, one color or size for another) are not considered returns for purposes of this Subtopic.

Sales revenue and cost of sales that are not recognized at time of sale because the foregoing conditions are not met shall be recognized either when the return privilege has substantially expired or if those conditions subsequently are met, whichever occurs first.

2:26 pm April 3, 2012

Todd wrote:

@Bill - Considering revenue recognition is one topic that leads to restatements for many companies, the Controller at the very least should look at it every quarter and the CFO should be comfortable with it.

First of all, it's no longer FAS 48; we have accounting standard codification now; I am not sure why FAS 48 is even being sited. Second, no revenue is recognized until the refund periods are over? That would be completely incorrect. You make the best estimate you can. If you have historical data for your self, you use it. If you do not, you get data from competitors filings or industry groups. After that, you make a best estimate on other data. But to record NO revenue is completely incorrect.

11:16 am April 3, 2012

Bill wrote:

FAS 48, like many accounting pronouncements, relies on significant estimates that are usually based on historical experience. Just like stock-picking, historical experience doesn't always hold up. However, if a restatement is involved, it typically means that the original estimate was not only incorrect, but it was not done in a procedurally correct way. This is something likely done by a low level accountant and reviewed by a mid-level manager, but will not be reviewed (usually) by anyone at the executive level - including the CEO, CFO, and General Counsel.

7:01 am April 3, 2012

Kleer wrote:

@ West: And perhaps as stupid as one who takes it upon himself to correct two sentences of English usage but misses the incorrect "consul." (A consul is a diplomat, not a lawyer.)

3:04 am April 3, 2012

West wrote:

@Davo: As stupid as someone who can't spell "their" or use a question mark or period correctly.

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